Oracle Sales Miss Estimates on Slow Transition to Cloud

(Bloomberg) -- Oracle Corp. reported quarterly revenue that fell short of analysts’ estimates, highlighting its struggles to transition to new cloud-based services amid the sluggish performance of its traditional database and business software.

Key Points

  • Fiscal first-quarter revenue declined 1.7 percent to $8.6 billion, falling short of estimates of $8.7 billion. Cloud revenue increased 59 percent in the quarter ended Aug. 31.
  • Profit excluding certain items was 55 cents a share in the period. Analysts on average had forecast profit of 58 cents.
  • Shares fell as much as 3.9 percent in extended trading after closing at $40.86 in New York.

The Big Picture

Oracle, while revamping its products, is searching for new ways to spark growth as it comes under growing pressure for customers who prefer cloud-based software from rivals such as Microsoft Corp. and Inc. In July, the Redwood City, California-based company stepped up that effort when it agreed to buy cloud-service provider NetSuite Inc. for $9.3 billion, one of Oracle’s biggest deals one record.

Oracle Sales Miss Estimates on Slow Transition to Cloud

The Detail

  • Core cloud revenue climbed 77 percent to $798 million in the quarter. Oracle’s older on-premise software revenue declined slightly to $5.82 billion.
  • Short-term deferred revenue was $9.5 billion, up 4 percent from a year earlier.
  • Core cloud-based gross margins are expected to climb from 62 percent this quarter toward the company’s 80 percent target, co-Chief Executive Officer Safra Catz said in the statement.
  • “Next week at Oracle OpenWorld, we will introduce the second generation of our Infrastructure as a Service,” which “represents a huge new cloud opportunity for Oracle,” Larry Ellison, Oracle chairman, said in the statement.
  • Company added more than 750 new customers to its key cloud software-as-a-service line, co-CEO Mark Hurd said in the statement.
  • Net income rose 4.9 percent to $1.8 billion in the quarter from a year earlier.
  • New software license revenue declined 11 percent to $1.03 billion.

Company Forecast

  • Fiscal second-quarter adjusted revenue, in constant currency, is projected to be in a range of unchanged to a 3 percent increase from a year earlier, Catz said on a conference call.
  • Second-quarter earnings per share, excluding some items, are forecast to be from 59 cents to 62 cents in constant currency, she said.
  • Adjusted sales of Oracle’s core cloud products are projected to increase about 67 percent year over year in constant currency, Catz said.

Street View

  • “At a high level, the company missed expectations, but if you peel back the onion, the company continued to make significant traction in the cloud,” said Bill Kreher, an analyst at Edward Jones & Co.
  • “Oracle was slow to recognize the shift to the cloud. But now that they’ve decided to invest heavily behind it, it appears that the narrative is shifting from a company losing to the cloud to a company who is now regaining share,” he said.